Oil Games in Baghdad

This week the Council of Minister in Baghdad passed a new 2014 budget, despite the walkout of Kurdish members of the government and the absence of Sunnis. Although the budget still needs to be voted on by the Iraqi Parliament, which is on recess for ten days, its proposals represent a slap in the face of Kurdistan. The budget’s provisions declare that if Kurdistan does not export 400,000 barrels of oil per day (bpd) through the central government controlled pipeline network, it will not receive its share of the national budget. The budget also fails to mention anything about payments for oil companies operating in Kurdistan, even if Kurdistan does pump 400,000 bpd into the national pipeline network, or anything about the promised reparations to Kurdistan for actions of previous regimes (as stipulated in Article 112 of the Constitution). The budget even fails to provide governorates their $5 fee per barrel of oil produced from their territory, as stipulated in last Spring’s amended Provincial Powers law, instead promising them only $1 per barrel.

This occurs in the context of an increasingly independent hydrocrabons industry in Kurdistan, as I discussed in previous columns and Rudaw reports on regularly. Even governorates like Nineveh, Wasit and Basra have been pursuing a more and more “Kurdish style” independent hydrocarbons policy lately, meeting on their own with oil companies to talk about exploration in new fields.

Yet the usual suspects in the media, American think tanks and the academic community will no doubt cast the latest events as a bold effort by Prime Minister Maliki to keep Iraq together.

Article 111 of the Constitution of course stipulates that Iraq’s oil and gas belongs to all Iraqis, and Kurdistan and governorate leaders have always accepted that oil revenues should therefore be distributed proportionately throughout the country, no matter where the oil is actually extracted from. For the Kurds, that means the agreed upon formula of 17% of revenues. So contrary to what we often heard in the media, no one was ever talking about the Kurds and the Shiites in Basra making off with all the oil revenues and leaving Sunnis to eat sand in Anbar. In Article 112, the Constitution also stipulates that the central government and regions and governorates need only work together (together, not Baghdad by itself) on oil extracted from “present fields,” leaving future fields to regional and governorate control. Kurdistan is willing to remit its oil money to Baghdad, but given past central government failures to pay Erbil all it is due, wants to deduct its expenses, some reparations (within limits) and if necessary, its 17% first. The Kurds also insist on controlling their own newly discovered fields and oil contracts.

In his 2009 book on Iraq, Brendan O’Leary explains that “Iraq’s present fields have long lives ahead of them. As and when regions other than Kurdistan develop, there will be a corresponding reduction in the necessary revenues for the federal government to execute its functions, especially if the regions exercise their constitutional right to monopolize internal security.” During this time, new fields will be explored, discovered and brought on-line by Kurdistan, the governorates and future regions of Iraq, increasing their independence from Baghdad. Therefore, O’Leary says, “The Constitution spells the death warrant of a highly centralized Iraq, but it delays the execution–to enable the regions and provinces to grow.” This is as it should be, in order prevent the re-emergence of authoritarianism in Baghdad and to allow the different nations, communal groups, religious communities and regional identities in Iraq the space to live with each other.

Yet the usual suspects in the media, American think tanks and the academic community will no doubt cast the latest events as a bold effort by Prime Minister Maliki to keep Iraq together. “If Kurdistan gets to export its own oil,” they will say, “then every governorate will want to do the same.” Exactly – this is the point of federalism and decentralization, which is what more than 78% of Iraqis voted for in the Constitutional referendum of 2005.

The Maliki government’s actions actually represent the best way to break Iraq apart. Although I believe Mr. Maliki is presently engaged more in a bargaining attempt than a serious effort to form a budget for 2014, the threat this year is the most significant salvo yet against the Kurds. Baghdad’s previous threats to blacklist oil companies signing contracts with Kurdistan or sue them proved hollow. Last time I checked, Exxon signed a deal with Kurdistan and still has its stake in southern oil fields, while Genel Energy, DNO and Keystone’s lawyers sit idle and have no legal issues to deal with from Baghdad. Maliki government officials actually had to practically beg Exxon to stay in southern Iraq and not sell off all of its stake in the fields there, as Exxon apparently wanted nothing more to do with the Iraqi Oil Ministry in Baghdad.

The Maliki government’s actions actually represent the best way to break Iraq apart.

Kurdistan’s 17% share of the Iraqi national budget equals about 300,000 bpd of oil exported per year, a capacity which the Kurds should have within a month or so. Given the threat from Baghdad, what if the Kurds managed to up their production to the requested 400,000 bpd by the end of 2014? Estimates are that Kurdistan could manage 1 million bdp by 2016. That’s a lot more than they would get from their share of the national budget, even if Baghdad did not engage in accounting shenanigans for its own expenses and remit a good deal less than 17% to Erbil, as it has in the past. Might the Kurds be tempted to just say “Keep your budget, and keep your state for that matter – we’re leaving and we are taking the ‘disputed territories’ we already control with us.” Today’s government in Turkey looks like it just might accept this kind of thing as well, especially given all the cheap oil and gas it would get in the process.

Given the situation in places like Falujah and Ramadi, this kind of response from the Kurds at this time would be much worse news for Baghdad than for Erbil. Which is why I don’t think it will come to this. Mr. Maliki and his ministers are bluffing.

David Romano has been a Rudaw columnist since August 2010. He is the Thomas G. Strong Professor of Middle East Politics at Missouri State University and author of The Kurdish Nationalist Movement (2006, Cambridge University Press).

Comments

Great article that strips naked all the lies coming out of Baghdad, leis which are being repeated on megaphones in Washington. The tragic comedy of all this is the audacity of Baghdad to mention "constitution breach" by KRG. Now we're even hearing that Baghdad is "feeding" us, never mind the fact that Kerkuks oil had been pumping all this time and it had been "feeding" more than half of Iraq for over 90 years, never mind that 17-83% is grossly unfair when Kurds make up more than 17% of Iraq, KRG has even been paying most of the expenses of the disputed territories with that "17%". If you deduct all the money Baghdad has been withholding like the salary of the Peshmarga, the compensation of the Anfal victims, the payment of the oil companies operating in KRG, the gasoline and gas share of KRG, the amount of the 17% they "withhold" every year, that leaves Kurds with around 5-6% of Iraqs budget the past 8 years. That's the amount Kurds would get under Saddam, and just like under Saddam none of the outstanding issues are resolved. People can draw their own conclusion but how long are we suppose to wait for Arabs of Iraq to start treating Kurds as partners? another 90 years? this will NOT be tolerated any more.

What does "the petrol belongs to the nation" mean? This is an empty slogan which in reality translates into giving absolute power to state bureaucrats central or local, and is the recipe to reenacting last 80 years history of pilfering wealth while destroying the bases of free economy. Unless we are living in communist utopia and declare death of individual property ,Petrol belongs to the individual on whose land an oil company has dug up its well. Tax revenue from the profit of sale of petrol should be the only legitimate mean for the state to gain revenue; It is this revenue that belongs to all the nation and needs to equally shared by all members of the nation. As long as the concept of certain revenue on another person's land belongs to nation is debunked, petty dictators and incompetent rulers will continue to appear one after the other, each using the free reign of source of money to oust the other and the governed continue to pay the price
I am told when the communists in 1972 asked the great Barzani why he did not support nationalisation of petrol companies, Barzani had asked some tongue in cheek questions of the communist at the consequence the ultimate conclusion meant having all money revenue in central bank in Baghdad under control of the ruling Baath party. So put this question to the communist " So do you want me to support a measure that places more money in the hands of the Baathists?" Now the money is in the hand of Dewlet Alqanun

President Obama, you want to stabilize Iraq then just get hold of all the oil money from Iraq and make sure that the oil companies first and then everyone else in Iraq gets their fair share. Sitting on the sidelines and hoping for these people in Baghdad to come to their senses is not going to work. It is about money and they on their own can`t manage it especially with half the Parliament absent. You have a Strategic Framework Agreement with Iraq, use it. Or if have to put Iraq back on UN Chapter 7. The Kurds especially, cannot go through this budget threat every year. The oil Majors have made it clear that the Kurds are entitled to export their own oil. Accept it then and let Baghdad know, and move on.